Surprising Solutions for a Bankrupt City

Detroit has plenty of company in cities that have faced dire financial prospects. From selling Roosevelt’s rifle to selling the whole town, a look at the innovative ways municipalities have found extra cash

Detroit filed for bankruptcy Thursday, becoming the largest city in America to do so. The city of 700,000 people is struggling with a $380 million deficit and more than $14 billion in debt.

But the great recession was not particularly choosy in selecting its victims. Cities across the country have faced rising deficits and, in many cases, looming bankruptcy. Here’s a look at the unorthodox measures taken by some cities to stop the flood of red ink.

Star in a jeans commercial
The town of Braddock, Pennsylvania has turned its desolation into an attraction.

Mayor John Fetterman, who has garnered a number of headlines for his efforts to revive his fading Rust Belt town, has trumpeted what he calls Braddock’s “malignant beauty.”Jeans maker Levi Strauss & Company showed up to produce ads that featured the residents’ every-day struggles for its “Go forth” ad campaign.

Film our ruins
The Office of Film and Television in Gary, Indiana is capitalizing on the decrepit landscape of the former steel-producing juggernaut. Between 2010 and 2011, at least 50 films were shot in the city—including titles like “Transformers: Dark of the Moon” and “Heaven Is Hell.” Gary hasn’t been able to afford the cost of demolishing now-vacant buildings, the New York Times reports.

Auction off Roosevelt’s rifle
Harrisburg, the financially troubled capital of Pennsylvania, is facing $500 million in debt. Among the city’s bureaucratic missteps was purchasing $8 million in memorabilia for a museum that never was built. Now, the city is hoping to turn that mistake into cash. Harrisburg is auctioning off its collection of 8,000 Wild West items. Also in the haul: a rifle once owned by Theodore Roosevelt and a shirt worn by World War II general George Patton. The Patriot-News reports that the sale of the items is expected to bring in about a quarter of what the city initially paid.

Sell the whole thing or at least the library
Buford, Wyoming (population 1) made headlines last year when an unidentified Vietnamese man bought the unincorporated area that once was home to 2,000 residents for $900,000. Pontiac, Michigan has tried to make much need cash by putting its police station, city hall, and library up for sale.

Welcome Zappos
Cities are hoping private investment can help fill the void in public spending. Internet entrepreneur Tony Hsieh has injected hundreds of millions of dollars into Las Vegas as the city works its way out of the devastation wrought by the economic collapse. Hsieh is leading a $350 million project to revitalize the city’s downtown and is relocating his online shoe store, Zappos, to Las Vegas.

Pray
The mayor of Lipscomb, Alabama is hoping God will help cover the city’s mounting debt, the local news site AL.com reported in May. Facing more than $600,000 in debts, Mayor Lance McDade asked residents at a city council meeting to pray for the city. “So we ask for wisdom and ask for divine intervention, and of course we do solicit your support and your prayers, and if anyone has any ideas, we are open to those ideas,” McDade said. “Again, we pray for the city of Lipscomb.”

There is no easy solution for this problem. Unlike the Federal Government, cities can't print money and buy their own bonds.

There are 100+ cities in about the same condition as Detroit ... crippled by pensions, over-borrowing during boom times, unfunded federal mandates, high taxes (which can't go any higher without causing a revolt), high unemployment (higher than the 7.5% the government claims ... realistically closer to 15%) and very little job creation (other than part-time low-wage which means no tax revenue). So the tax base is shrinking at the very time they need it to be growing so they can pay off their debts. That spells trouble for them.

That could spell trouble for you too if you have money invested in municipal bond funds. For example, the state of Illinois is in a mess of trouble. If Chicago were to default a few years from now, you might get back 10 cents on the dollar. Pay attention to RISK and don't assume bond fund managers know what they are doing.

MEMO TO TIME MAGAZINE: This article was written by someone who knows virtually nothing about business.

The article is a wishful thinker's dream for rejuvenating a bankrupt city. Let's go through each of those 'surprising suggestions':

1) "Star in a jeans commercials."

Really - only a solitary, one-time commercial? So, the affected city would accrue the revenues from one advertisement, and then - nothing. It amounts to an incredibly short-sighted, short-term solution. Detroit needs and deserves better.

2) "Film our ruins."

Usually, towns allow film-makers to come through to show-case their town on the big-screen, in the hopes of boosting tourism and/or business investment. However, the fanfare surrounding those movies typically fades over time, again resulting in a short-term solution. Additionally, the Detroit police now hand out flyers to tourists, saying that they cannot provide adequate protection (due to budget cuts). So, this suggestion for Detroit cannot be taken seriously too.

3+4) "Auction off...Sell..."

Unless the items/properties in question is worth hundreds of millions (if not billions) of dollars, that suggestion is no where near adequate enough to generate sufficient short-term revenues. Also, those are short-term sales that are not coupled with a long-term profit-generating plan. Detroit needs and deserves better.

5) "Attract outside investment."

This solution has potential. However, it would take hundreds of 'Zappos'-like investments over the long-term to make an adequate difference in the city's sour business condition. That would also involve Detroit making investments in infrastructure, public transportation (etc.) to make the city more hospitable to business. Could the city make such costly investments? Since the author did not provide any analysis, it's hard to say.

6) "Pray."

Prayer certainly has its place in sour times. However, prayer must be coupled with action, as God does not involve Himself directly in earthly affairs. Without action, nothing will happen. I'm surprised the author didn't make note of that.

So, in a nutshell, this article contains a list of 6 half-baked, half-researched, and incomplete suggestions. Five of the suggestions are sorely inadequate short-term 'fixes' (to be generous), and the sixth (#5's attracting investment) would require significant planning to achieve even limited success.

TIME Magazine, of all the views you could have gotten for this article, you chose someone who displayed no knowledge of business. For an article about such an economically/financially troubled city like Detroit, your readers deserved better than this...

Hey let me guess - the world bank can give Detroit a loan. Then when Detroit defaults, all the public parks will be taken as collateral and they'll be PAWNED. Everything that appears as public, like the water supply or public parks, will be private. Everything private, like your own income, will be public so that you can subsidize poor people for all their social programs.

Divide 18 billion of debt by the Detroit population of 700k and you get $25714 owed by each remaining Detroit citizen. Divide 17 trillion by the U.S. population and you get $52938 owed per U.S. citizen. Who's the bigger screw-up?

Good idea. As soon as the rest of the world's industrial centers are bombed into ruins to such an extent that it would take a decade or two to rebuild, we can once again become the global economic powerhouse... Oh, wait, that wasn't part of the plan?

Pass a balanced budget amendment or law. My city has a balanced budget law and my state has an amendment. How did that turn out? Well, the state has $1B in cash reserves, the most it is allowed to have. The city just started a $250M convention center project after just finishing a $500M capital improvement program. We rebuilt just about every public school in the city. We hosted the annual mayor's conference last year and other mayors of larger cities said, "How the hell did you do that?" We got an NBA team just a few years ago and last year they made it to the final championship game. We are soon to break ground (or road) on a new trolley system along with a new central park system and the mentioned convention center. How did we do this in a very bad economy? Something no Democrat ever approves or votes, the balanced budget city. Try it.